Estimating the equilibrium real exchange rate for Namibia

Abstract

This paper estimates the equilibrium real exchange rate and the resulting real exchange rate misalignment in Namibia during the period 1970 to 2004. The equilibrium real exchange rate is determined by trade and exchange restrictions (openness), terms of trade and ratio of investment to GDP. An increase in openness and ratio of investment to GDP cause the real exchange rate to appreciate. The real exchange rate was overvalued for almost the entire estimation period. It reached its equilibrium value in 1998. It is important to monitor the real exchange rate, and ensure that the divergence from the equilibrium value is minimised.